lansbury

That is indeed my background and I am very thankful to be in receipt of my police pension.

nun

Actually I've reassessed some one my comments.

The UK Government pension is not taxable in the US when paid to a non-US citizen because of the language in the UK section of the IRS Tax Treaty publication 901. Similarly for the wages for work done in the UK military.

Helford

Thanks, Nun, can you point me in the direction of IRS publication 901 and the relevant part?

Your post is timely because I've been in touch with the team in HMRC who were able to advise on the DTA. Here's a synopsis of what they said in the hope that this may bring clarity to others who find themselves in this position:

1. A government pension (in this case my military pension) will be taxed only in the UK under 19.2(a). I think we knew that pretty much.

2. On the slightly more opaque question of the "lump sum": The HMRC view (it is not a ruling) is that the lump sum does not fall under Art 19 of the DTA, but rather falls under Art 17.2, which states: "Notwithstanding the provisions of paragraph 1 of this Article, a lump-sum payment derived from a pension scheme established in a Contracting State and beneficially owned by a resident of the other Contracting State shall be taxable only in the first-mentioned State"

In English (for me) the point is that the "lump sum" from the contracting state (= the UK) and beneficially owned by a resident (=me) of the other contracting state (= the US), shall be taxable only (and that's the key bit so they say) in the first mentioned state (= UK).

Thank you Mrs J Sydes of HMRC for taking me through that yesterday morning!

The issue remains with NJ filing, and how to deal with that.

lansbury

Unfortunately the IRS will rely on Article One paragraph 4 of the tax treaty and try and tax your lump sum.

Quote:

4. Notwithstanding any provision of this Convention except paragraph 5 of this Article,a Contracting State may tax its residents (as determined under Article 4 (Residence)), and by reason of citizenship may tax its citizens, as if this Convention had not come into effect

My CPA argued the lump sum was part of a government service pension and therefore not taxable in the US.

Helford

That paragraph rather renders the whole DTA redundant.

Did your CPA win the argument, Lansbury? There has to be some law of precedence for this sort of thing. Reinventing the wheel every time seems somewhat inefficient.

lansbury

I don't think there is any relevant court case where it has been settled on way or the other. It comes down to submitting what you think is the correct return and seeing what happens. My CPA did what he thought was the correct way of dealing with it and nothing was disputed.